Think it Through

In assembling his economic team President Obama has made one move that can only be described as spectacularly counter-symbolic. It is the equivalent of naming Dr. Kevorkian to head a cabinet-level office on long term care.

Obama’s choice to head the nation’s economic recovery team for saving jobs and putting people back to work is the man who was singularly responsible for erasing the jobs of four million Americans from 1981 to 1983. He did it deliberately, methodically, and effectively to bring down inflation.

Paul Volcker was chairman of the Federal Reserve Board from 1979 to 1987. When President Jimmy Carter appointed Volcker, the country was in a panic over inflation that had risen from 3.2% to 14.8%, and consumers were wondering if their dollars would become worthless in the near future. As soon as he became Fed chairman, Volcker raised interest rates, squeezing the money supply, which made business investing and hiring very difficult. Unemployment, already high at 7.0%, rose to 10% under Volcker. But within two years, Volcker had stopped inflation in its tracks and reversed it all the way back down to 4.2%.

During this wrenching period, Volcker was vilified for his policies. The Federal Reserve building in Washington saw its first protestors since the 1930’s. Members of the House and Senate denounced him. Labor unions considered him public enemy number one. The eccentric chairman of the powerful House Banking committee, Congressman Henry Gonzales of Texas, reserved time at the end of each day that Congress met to speak on the House floor calling for Volcker’s removal from office. As a young staff person, I can remember seeing Gonzales’ face get redder and redder as he got worked up over Volcker’s policies.

Throughout the two-year ordeal of economic correction, Volcker’s six foot seven inch frame was a symbol of more than long unemployment lines. He epitomized giant-sized, confident decision making based on knowledge and stony resolve. He was the anti-Alan Greenspan. He was not pals with the politicians or the press. When angry congressional committee chairmen would call him to testify, you would see his bald giraffe-like figure walking slowly to congressional committee hearings in a cloud of cigar smoke. The whole picture told you he was above them all.

Volcker succeeded not only in stopping what Americans feared would be an out of control inflationary spiral, but also in lowering inflation and putting the country on sounder economic footing.

Volcker’s story suggests there is a double irony at work in his new appointment. The first is obvious — that the jobs killer has been appointed to be the jobs creator. The second irony is that he could be exactly the right man for the job, if the president is willing to give him more control over economic decisions.

I say this for several reasons:

• First, unlike Lawrence Summers and Timothy Geithner, Volcker is a man who is not on his way up. At 82 years old, Volcker has seen a great deal of good times and bad, and his knowledge of real-world economics is more than that of Summers and Geithner combined.

• Second, Volcker knows Wall Street but he is not a creation of Wall Street. He is not tied as so many of the other advisors are to the Robert Rubin, Hank Paulsen mentality of telling taxpayers in Kennedyesque terms, “ask not what Citibank and Merrill Lynch can do for you, ask what you can do for Citibank and Merrill Lynch, and its executives and stockholders.”

• Third, Volcker is a steady hand on the wheel, and has shown courage and wisdom in riding out a storm.

Just as you can make a case that Dr. Kevorkian’s experience helping patients die peacefully would make him an especially sensitive and effective administrator for those who choose life, so too Volcker’s experience in 1981 and 82 could make him the perfect person to figure out how to restore jobs in 2009. He may not be as skilled a self promoter or infighter as others on the Obama team, but he is someone who has a proven record of doing what needs done to save the economy. He might even be willing to regulate what the banks do with the money the feds are giving them.

As the first team stumbles, President Obama should consider tapping Volcker to come off the bench and show them how it’s done.